Discover Rolls Out Signature Debit Cards; Third Debit Brand Will Offer More Choices, But Will it Have Many Takers?

RIVERWOODS, Ill. - The biggest news in the debit industry since the settlement of the Wal-Mart lawsuit came in last week as Discover, a nationwide card brand well known among consumers for its 1% rebate reward program, announced the roll out of a signature debit card. Discover will market the new debit card to go head to head with Visa and MasterCard's debit products. The move had been anticipated since last year when Discover purchased the PULSE EFT Association and gained an entry to the 4,100 banks and credit unions which make up PULSE's members. "Discover debit is the first new entrant into the signature debit market in more than 10 years," said David Nelms, CEO of Discover Financial Services. "Discover's assets, experience and brand strength offer significant competitive advantages and a highly appealing alternative for financial institutions, merchants and consumers. The launch of Discover Debit builds on this with a new, uncomplicated approach to signature debit that provides convenience and broad acceptance to cardholders as well as security and competitive program features to financial institutions." The new debit product will be quickly available to credit unions who process their card transactions with Elan Financial Services and Jack Henry & Associates, among others. The card company is approaching other processors such as Certegy and First Data Corp about supporting the card, Discover Vice President David Schneider said. Sources with the processors noted that the initial rollout made the card available to roughly 625 credit unions. If financial institutions opt for it, they may configure their Discover debit cards for use with personal identification numbers and ATMs, the brand said. It also announced it is introducing a debit card for business. Industry analysts said it was too soon to forecast what the ultimate industry impact of the new arrival would be, but a number said that some of the card dynamics would change just because Discover had begun offering a debit product. "I know it's not a blinding insight," said Lee Modesitt, a principal with First Annapolis consulting, a Linthicum, Maryland firm which deals with debit and credit issues, "but the arrival of the Discover debit card means that financial institutions, including credit unions, now have one more option to offer their cardholders and that has an impact on how they see their card options." Modesitt said that the "proof is in the pudding" when it came to evaluating how the Discover debit offering would change the marketplace and how many issuers would want to offer it. He noted that some issuers would likely be attracted to Discover's strong consumer brand identity and he noted that Visa and MasterCard may have less of an edge from their broader acceptance in the debit industry than the credit. "When it comes to debit and the places people like to use their debit cards, the supermarkets, gas stations, chain convenience stores, there is likely less of an acceptance gap than in other markets," Modesitt observed. Beth Costa, a director with the Atlanta-based consulting firm Edgar Dunn, said that the decision to take a credit card was the result of a complex value proposition that involved a number of different factors. It will take some time for the whole of Discover's debit proposition to become clear, she said. Ron Silvia, a director with PSCU Financial Services, the cooperative which serves over 500 credit unions that process their transactions with First Data Corporation, said that it appeared Discover was reaching out to credit unions with the offering, particularly in the aspects of the new card which made it appear easier to manage than either Visa or MasterCard's debit products. "I think there are a lot of things about the new card, the online management, and the use of words like `streamlined' and `uncomplicated' that are going to make this attractive to credit unions," Silvia said, "from the issuer's point of view. The hard part is going to be coming at it from the consumer's point of view." Silvia said he doubted that acceptance of the card was going to be member- or consumer-driven in that it was unlikely anyone was going to go running into their credit union demanding a Discover debit card. Rather, he said, it was going to be up to the credit union to sell the use of a product which they might find easier and cheaper to offer to their members. "That's why I think some use of a rewards program, especially one that Discover might subsidize somehow, may be necessary," Silvia said. A subsidized rewards program would help credit unions, which are by and large still cautious about debit rewards, to move into the debit reward space as well as to help differentiate the Discover debit brand from Visa and MasterCard. Both Silvia and Costa doubted that Discover's debit product would be something credit unions or banks would market to their members or customers as a product to which they would want to switch. Instead it is more likely that the Discover debit card may be a product that a credit union or bank might want to offer members or customers when they open a new checking account. "I think there is a lot of appeal in having a new card to offer in a saturated card market," Silvia said. "I am just not sure that is going to be enough." dmorrison@cutimes.com